AMC’s MOASS was just threatened by a put theory that came about from YouTubers in the ‘ape’ community.
Many community members feel betrayed, others are choosing to follow the new narrative.
Despite which road you decide to take, we’re going to break it down together below.
Welcome to Franknez.com – if you haven’t joined the newsletter, be sure to do that below. I’m publishing market news and updates daily.
Let’s dive right into it!
Join the newsletter to become part of an activist group fighting for market transparency!
Receive weekly market news to stay up to date.
Puts on AMC stock
Most of you have heard about the put theory where YouTubers in the ‘ape’ community say buying puts on AMC is the way to make money and drive the price of the stock up.
And while buying puts or options trading is a way to make money in the market, what’s the exact logic behind it in this scenario?
But most importantly, will buying puts on AMC stock trigger MOASS?
There are two things to consider when putting out information like this out to a massive community.
- Trading options is risky, and profits are not guaranteed
- This is just theory
What is the put theory?
The theory says that as market makers are pushing the price of a stock down, you push the price of the stock down too with put contracts while you hold your AMC stock.
This essentially would enable the market maker to lean towards the upside since majority of orders are puts rather than calls.
At the same moment, options traders may potentially make money when they exit the put, a process known as ‘hedging’.
Although, it is important to note that a successful play is not guaranteed.
The theory then transitions to buying the stock or buying call options as the market maker moves the price of the stock up, further fueling buying pressure.
According to the put theory, because algos tend to favor low prices (which puts are at the moment), eventually those same algorithms will move towards buying the less expensive call options, driving the price of a stock up.
This is all theory of course.
While I agree that as individuals, we can always learn something new, you cannot demand it from a community who may potentially lack the resources to do so (time, monetary means, etc.).
Trading options requires patience, time, money, and learning something completely new, which I’m 100% for.
But most people might not be open to the idea of taking up a new hobby or hustle.
And if you are, kudos to you.
But is buying puts on AMC going to help squeeze shorts from their positions or will it only provide market makers with more liquidity?
Remember, this is just a theory after all.
YouTubers say that with so many puts in play, market makers will eventually begin to move the price up, where retail investors can then begin to play call options.
While it’s a great strategy to make money in the market, is there a lack of integrity when asking a community to keep buying and holding a stock while others profit from the foundation of those who are not trading?
Options trading is risky but may provide great reward if a play is strategized properly.
But should it be done on AMC?
Would buying puts on AMC prolong a short squeeze?
It’s an interesting theory, isn’t it?
But if options traders begin to fuel AMC with puts during a bear market, doesn’t that just drop the price for retail?
And while some retail investors might feel like this theory may be taking advantage of them, in the sense that options traders get to make money while retail momentum collapses, I don’t personally think there were any nefarious intentions behind this.
Some sentiment in the community is looming that:
- YouTubers either sold their positions and are now looking for ways to make money trading AMC.
- There’s a lack of integrity and transparency from creators.
And not every YouTuber in the community is on board with this idea either.
But I’d love to know what you think.
Is trading options bad?
Trading options is a skill you can develop to hedge in the market and make money on the downside and upside.
It allows traders to buy shares cheaper and earn a premium.
Technical analysis usually provides traders with hindsight and allows them to make educated predictions as to where the price of a stock is going.
A trading decision is then made based on this research and analysis.
The risks are you can lose money on every trade, which could develop into a form of gambling without proper due diligence and research in options trading.
What can we take from the information that YouTubers in the community are suggesting retail take?
There’s always something to learn.
While I don’t agree with buying puts on AMC specifically will accelerate a short squeeze event, trading options could prove to be a valuable skill you can put to use in other assets.
Is an AMC short squeeze still possible?
YouTubers are saying to make cash with both calls and puts in AMC Entertainment stock.
So where does that leave a short squeeze?
Is a short squeeze still possible?
AMC’s current short interest is at 20.94%.
This means there’s a high percentage of shorts that have not closed their positions yet.
AMC surged to $72 per share from a 20% short interest drop to 14%.
AMC has the proper setup for a short squeeze, you can read more about the data supporting this setup here.
Can the put theory really trigger MOASS?
Like shorting a stock, the put theory is essentially a ‘bearish’ strategy that stunts the growth of a stock in the short term.
There are no guarantees algorithms will favor calls over puts as puts pile up into the market.
One would also need to convince many call option traders to buy puts or get the ‘ape’ community learning the process to do so.
It’s an unlikely scenario that has the potential to create bigger losses for the inexperienced options trader.
I’d love to hear your take on it.